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I think the political impasse has forced us to turn short-term bearish on the pound

Viraj Patel

He added: “The message we would really be making to investors is that there are two probabilities to focus here. One of the perceived risks of a no deal which there’s a lot of political games, there’s a lot of sort of game theory involved here for when it comes to negotiations.

“The actual odds of an economic regime shift towards WTO trading rules where we still see the probability as pretty low.

“So I think that’s where the medium focus for the pound will be. But in the short-term it is just too hard for sterling investors to ignore.”

Mr Patel played down fears of a no deal Brexit before warning “things could get even worse” for the pound.

He said: “One thing to really note this week – let’s not draw too many conclusions about no deal risks.

“August is a bad month seasonally for the pound – both against the dollar and the euro.

“Depending on how you spin it, things could get even worse if political noise does pick up back in September.”

The pound dropped to its lowest exchange rate with the US dollar in almost a year, at $1.2850 in the foreign exchange on Thursday morning.

The pound also dropped to €1.107 on Wednesday for the first time since last October.